Employers Cap Healthcare Procedures to Reduce Costs

Employers are starting to test a new way of capping healthcare costs, telling workers they will pay only a certain amount for a given test or procedure, leaving employees who choose more expensive options to pay the additional cost themselves.

The tactic already is persuading some hospitals to lower their prices, reports The New York Times, pointing to a plan in California, one of the country's biggest buyers of healthcare benefits.

Under the program, public employees are given the choice of going to one of 54 medical centers — including well-known names such as Cedars-Sinai and Stanford University Hospital — that have agreed to charge no more than $30,000 for a hip or knee replacement. Prices for the operation vary greatly throughout the state and the nation, ranging from $15,000 to $110,000.

"It's a symptom of the completely irrational pricing structure hospitals have," Ann Boynton of the California Public Employees' Retirement System, known as CalPERS, which helped introduce the program, told the Times.

The newspaper cited a study by health insurer WellPoint which found that under the program overall surgery costs fell 19 percent in the program's first year, 2011, with the average amount paid hospitals for a joint-replacement falling from $35,408 to $28,695.

The study showed no impact on the quality of care.

The California program selected hospitals based not just on price but also on issues such as the number of surgeries they performed and their success rate.

"It's not just about reducing cost at the expense of health and clinical outcomes of members," said Boynton.

Still, the plan at least could serve as a warning to hospitals that employers are aware of huge price discrepancies and will no longer pay whatever they charge insurers. "That's a very powerful signal," Suzanne Delbanco, executive director for Catalyst for Payment Reform, told the Times.

The Times said grocery chain Kroger also has instituted a similar program for its workers.

Employers are starting to test a new way of capping healthcare costs, telling workers they will pay only a certain amount for a given test or procedure leaving employees who choose more expensive options to pay the additional cost themselves.